Path #4 - Holds Your Assets In TOD or POD Accounts (sometimes called "Totten Trusts" or "Informal Trusts")
Question: What control do you have? Answer: Complete control because you can always change the designated beneficiary on the TOD and POD accounts until the day you die or become incompetent.
What probate fees, costs and commissions have you saved? Answer: Substantially all. If the estate avoids probate you will have saved all the fees, costs, and commissions usually associated with probate but only for that property subject to the PODs and the TODs.
A will, however, will still be necessary to take care of the disposition of your real estate and personal property not covered by the POD and TOD designations, (i.e. your home, clothes, cars, boats, family heirlooms, and collections), to dispose of unexpectedly acquired property, to name a personal guardian for minor children or heirs, to disinherit a child, and to name an executor.
Some states allow TOD registration for cars and other vehicles, (i.e. Missouri and California). TOD registrations will work for securities in most states, and POD registrations will work in most states for cash accounts held by banks, savings and loan associations, and credit unions.
You must be particularly careful if you leave unequal shares in a TOD or POD designations. Some states, for example Florida, do not allow a person to leave unequal shares in a POD or a TOD designation.
With a POD account the you cannot name alternate beneficiaries. If the beneficiary dies prior to your death, and you do not name a new beneficiary, the account will pass to the residuary beneficiaries named in your will.
If the beneficiary is or may be a minor, most states do not allow the money to be simply turned over to the minor's parents. An adult "custodian" can be named under the Uniform Transfer to Minors Act and that will work, but that has its draw-backs too. Otherwise, a formal guardianship will have to be established for the minor on your death.
The designated beneficiary has no rights to a TOD or a POD account until the account holder's death. Opening a POD or TOD account is not a taxable gift. The value of the POD or TOD account is included in your taxable estate. After your death, in most cases, the beneficiary normally only has to present proof of personal identity and a certified copy of your death certificate to have access to the account.
This is not a way to disinherit a surviving spouse or to prevent a surviving spouse from receiving her statutory share of the estate. If this is your intention in designating accounts TOD or POD, it won't work.
The state, Medicaid, creditors, and the federal government can all place liens on POD and TOD accounts preventing disbursements of the accounts to the named beneficiaries until their liens are satisfied. If you intend to use TOD or POD accounts to defeat the claims of creditors, again, it won't work.
Government securities including EE bonds can be held TOD. However, there can only be one named beneficiary of a government bond. Multiple beneficiaries are not allowed.
In most states TOD registration of securities is allowed. As of 2004, however, TOD registration of securities was not allowed in the District of Columbia, New York, and Texas (according to Martindale Hubble). Even if allowed by law, no securities broker/dealer is required to offer TOD registration of securities accounts
If the designated beneficiaries argue or cannot agree, the holder of the TOD or POD account will likely interplead the account with the local probate court and a mini or full-blown probate will break out.
A POD or TOD account can be amended or changed at any time during the account holder's lifetime provided he or she is still competent.
If a POD or TOD account is left to someone other than the named TOD or POD beneficiary by your will or Revocable Living Trust, the states wherein this question has been litigated have all held in favor of the designated beneficiary of the TOD or POD account.
The bottom line here is that holding property in POD and TOD form will work provided that:
- there are no minors involved,
- the designated beneficiaries do not die prior to your death,
- all the designated beneficiaries get along,
- all the designated beneficiaries are going to take equal shares,
- only one beneficiary is named to take any government bonds,
- the securities accounts are not located in New York, Texas, or the District of Columbia,
- if you want to change the designated beneficiaries of the accounts, they must not become incompetent before they act,
- you provide for the disposition of your real estate and non liquid assets either by either giving those assets away, by writing a will, or by writing a Revocable Living Trust.